And here we are, like clockwork, jumping on the tackiest, lamest marketing exercise every analyst, consultant, CEO, and wannabe thought-leader always persists in doing… because you are supposed to gasp “Wow – they are predicting the future!”
Firstly, on behalf of HfS, I would like to personally apologize for jumping on the predictions sausage-factory (like we do every year). In fact, someone has probably designed a software package that automates predictions. In fact again, some provider probably runs a “Predictions on Demand” service that underpins the predictions-generating software with a KPO service that customizes your predictions for you;
Secondly, unlike all the other predictors this year, our predictions will automatically expire on 2nd January 2011, so they will no longer be valid, and will simply become an embarrassing attempt to sound impressive, while grossly misrepresenting reality;
Oh, and thirdly, here are our Predictions:
1. The outsourcing industry will see the first Cowboy and Indian mega-merger
In today’s market, the Western providers have been forced to bring their costs in line to be competitive with lower cost offshore-centric Indian service providers, by expanding and optimizing their offshore/nearshore operations. Both the traditional Western providers and the newer Indian breed can offer low-cost services to take on new business. It’s not really about cost anymore, though, as several Indian-headquartered providers continue to gain marketshare in this environment as many outsourcing customers are fond of their work culture. However, many sourcing managers, a rung down from the CIO, have squeezed as much as they can out of the easy work. The app support, the testing, the simple coding is running about as cheap as they can get it – there is little room left for them to maneuver. Hence, the next wave of growth for the Indian providers is to move further up the value chain to win more consultative assignments and service integration work. Several Indian providers are trying to be more like the Western providers, and the smart Western providers have studied the Indians who’ve been eating their lunch, and are working out a game-plan to win back lost business. The cultures are moving closer together, and HfS believes 2011 will see the first mega-merger between a major Indian services provider and one of the Western incumbents.
2. BPO uptake will creep back throughout 2011, as the recovery stutters and buyers pull the trigger on sourcing initiatives, however, many of the deals for the first-time buyer will be small in scope
Many businesses were paralyzed by the Recession and have been operating a “wait and see” strategy through 2010 regarding their Business Process Outsourcing (BPO) options. However, a slowing recovery and a growing pressure to meet budgets will drive a steady wave of increased BPO evaluation and contract signing in 2011, especially in Finance and Accounting and Procurement. HfS demand-side research has pinpointed a strong interest from buyers to increase scope in existing BPO contracts, and close to one-in-four businesses in the mid-market ($1bn – $3bn in revs) are expecting to investigate their first steps into F&A BPO. Moreover, many BPO providers are more determined than ever to “penetrate and radiate” customers with initial small-sized contracts with minimal profit margins, due to the shortage of attractive captive acquisitions and affordable competitive acquisition candidates.
3. IT Outsourcing will have a banner year as market peaks, however growth will tail-off towards year-end as wage-arbitrage begins to become saturated
HfS Research shows that 75% of ERP development work is still carried out onshore, and expects the steady growth of application development and maintenance deals to continue apace throughout the year. However, with much of the “lower hanging fruit” operational software work from the global 2000 moving to offshore-centric providers at such pace, HfS expects to see the first genuine signs of this market reaching its peak towards the end of the year, as buyers exhaust their arbitrage opportunities. The mid-market will provide a lot of new ITO market growth, however, these deals will be smaller in nature and often less profitable for providers, having smaller scope and often high complexity, that will prove a drain on delivery resources.
4. Service integration becomes the new fad, replacing innovation as the buzzword of the day
Too many business have failed to achieve innovation within their outsourcing engagements because they have struggled to bring together common goals and objectives across their sales, general and administrative services. The only way to start achieving new thresholds of productivity is to integrate the management, orchestration and delivery of their sourced operations, where the service integration leadership has the clout, investment and expertise to work with a service integration provider to make this happen.
5. Service providers will start to break out of vertical silos to help their clients collaborate
Outsourcing services customers are increasingly eager to learn from peers and share best practices, but this is continuously challenging for them when their service providers are structured in narrow industry silos and struggle to help them collaborate with clients in other industries. Service provider leadership is also looking at ways to help their delivery teams develop better utility models across multiple clients to drive down their margins, and the only way to do this is break from the industry-silo culture. Moreover, they are suffering from the high cost of sales and marketing by having multiple vertical businesses operating independently from each other.
6. Integrated offerings from service providers with broad capability gain market share. Distinction between BPO and ITO blurs
With the leading IT services providers all heavily pushing BPO capability, there will be increased blurring of offerings as industrialized process solutions become more popular. Process-only BPO will continue to proliferate across horizontal offerings where there is significant labor arbitrage opportunity, namely finance and accounting, order management and procurement, however within industry-specific process, platform-enabled offerings are the only way providers can develop cost-effective utility models across their clients.
7. Many CIOs will thrive or fail because of Cloud demand from their business function leaders
With both Business and IT decision-makers expecting to allocate 30% of their IT budgets to the Cloud over the next five years, it is going to demand new IT and business operating models and radically different sourcing mind-sets from CIOs and business function leaders. The ability to access business applications quicker, faster, cheaper and in a virtual business environment are the major drivers – and it’s the business side of the house which is getting seriously engaged by the potential value than the IT-side, with two-thirds of business leaders seeing huge appeal in the Cloud value proposition. For many CIOs who fail to deliver this value, the business side will be forced to look at alternative avenues for Cloud enablement.
8. Successful advisors shift their business models to be “lighter” or more full featured
The death of the advisory business has long been predicted and failed to materialize. However in 2011 and beyond, buyers will seek a more cost-effective, lighter touch solution from their advisors or seek alternatives. Several trends will contribute to this shift in demand: the significant experience base of enterprise buyers; smaller deals with smaller savings will make expensive consultants hard to justify; industry consolidation is likely, perhaps finally fixing the cost model issues of the advisory world; mid-size buyers looking for advice have many options other than traditional advisory firms. At the high end of the market, however, there is an opportunity to provide a more full-featured offering that goes well beyond transaction facilitation. These clients demand vertical and process expertise, front office integration, cloud strategy, shared services advice, and implementation of all of the above in a single, strategic engagement.
9. Onshore and nearshore alternatives hit the mainstream
A number of economic and political phenomena will contribute to the growth of onshore and nearshore alternatives, primarily the shrinking of the arbitrage gap fueled by a weak dollar and even weaker Latin American and African currencies. Almost all providers are investing heavily in Latin American capability, and will be highly motivated to drive demand to fill their capacity.
10. HfS Research will achieve world-domination
Having rocketed to double-digit employee growth in 2010 (well, reaching a double-digit number of employees), HfS will continue its social-media fuelled surge to change the entire face of the research industry. People want immediate, compelling, data-driven and relevant advice, and have limited patience and ever-reducing attention spans to get it. HfS will be there to deliver it. Its management will become so wealthy they can turn the firm into a not-for-profit and bring Larry King out of retirement to conduct all future HfS blog interviews. In addition, HfS will fire the White House as a client because they won’t give us any tax breaks….
If you believe any these predictions to be disturbing, please contact your local predictions support agent at 1-800-BANDWAGON and we will be happy to assist – remember to press #1 for English, otherwise you’ll get a load of incoherent rubbish . Alternatively, if you think we’re full of it, feel free to say so right here…